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Transportation businesses may need financing to add trucks, hire drivers, cover repairs, or hold them over while waiting for customer payments. In my experience, the right financing depends on what you're paying for, how quickly you need the money, and how you want to repay it.
Below, I cover seven primary types of transportation business loans, what lenders look for in an application, and the steps to apply.
| Loan type | Loan amount | Rates | Repayment terms | Best for |
|---|---|---|---|---|
| Equipment financing | Up to 100% of equipment value | APRs starting at 6% | 12 to 72 months | Purchase or lease new trucks, trailers, tools |
| Short-term business loan | Up to $5 million | APRs starting at 6% | 6 to 36 months | Expand fleet size, pay big bills, working capital |
| Business line of credit | Up to $5 million | APRs starting at 6% | Revolving, 6to 36 months | Manage daily cash flow fluctuations, recurring expenses |
| Invoice factoring | Up to 100% of invoice value | 0.5% to 5% per invoice per month | Typically 30, 60, or 90 days | Business-to-business (B2B) haulers waiting on broker payments |
| SBA loan | Up to $5 million | Starting at 6.75% | 10 to 25 years | Large expansion, commercial property purchase |
| Merchant cash advance | Up to $5 million | Factor rate 1.08 to 1.45 | No fixed term; repayment length is based on monthly sales | Urgent need for working capital, fluctuating revenue |
| Home equity line of credit (HELOC) | Based on home equity; up to $750,000 | As low as prime | Up to 30 years | Truck purchases, down payments, and major fleet expenses |
Seven Types of Transportation Business Loans
I'll break down the details for each.
Equipment Financing for Trucks and Trailers
With equipment financing, borrowers can finance the purchase of a commercial vehicle, trailer, or other equipment for their business. Since the equipment is collateral, it's usually easier to qualify for an equipment financing loan than an uncollateralized loan. Interest charges on equipment financing may qualify as tax-deductible business expenses.
Short-Term Business Loans for Fleet Growth and Major Expenditures
A short-term business loan is the classic definition of a small business loan. You borrow a fixed amount of money and pay it back over a predetermined period at a fixed interest rate. Most term loans are financed within one to three days after approval. Operators and trucking fleets use term loans to finance major expenses, such as engine repairs or a down payment on a yard. They also use term loans to make acquisitions or expand their fleet.
Business Lines of Credit for Managing Seasonal Cash Flow Fluctuation
Business lines of credit work a lot like business credit cards, but with substantially better terms. Lenders approve applicants for specified limits, and you can withdraw against those limits as needed. You only pay interest on withdrawn sums.
This works for owner-operator fleets experiencing seasonal cash flow fluctuations or unexpected operating expenses, such as spikes in fuel prices or delayed payments from brokers. When cash flow picks back up, you pay down what you borrowed, and the full line is available again for the next slow stretch.
Invoice Factoring for Same-Day Payment on Unpaid Invoices
If most of your income comes from brokers and shippers who pay bills according to net-30 or net-60 schedules, then invoice factoring is one way to convert outstanding invoices into same-day cash.
Here's how it works: You sell your outstanding invoices to an invoice factoring firm at a slightly discounted value. The invoice factoring firm provides you with an advance equaling up to 100% of your original invoice amount at closing. Afterward, the factoring firm directly collects payment from your customer when due. Fees charged by factoring firms are generally 0.5% to 5% per 30 days.
Factoring closes the gap between when you haul a load and when the broker pays. You haul a shipment Monday morning, but it won't be until 55 days later that your broker sends you payment via check or wire transfer. Factoring fills this gap so you can buy fuel, pay driver wages, or tolls, without depleting your savings or delaying deliveries.
SBA Loans for Long-Term Development
SBA loans are backed by the federal government. The Small Business Administration (SBA) doesn't make direct loans but rather guarantees a certain percentage of a loan made by an authorized lender, reducing the lender's risk and giving the borrower lower rates and longer repayment terms.
Two of the most popular SBA programs for the trucking industry are the SBA 7(a) loan, which allows up to $5 million, and the SBA Microloan, which allows up to $50,000.
An SBA loan makes sense if you plan to invest in a significant expansion of your business, purchase commercial property, or build out a much larger fleet. Processing times for SBA loans vary from 30 to 90 days or longer. If you need access to finances immediately, consider the other loan options before the SBA loan options.
Merchant Cash Advance for Rapid Access to Capital
A merchant cash advance (MCA) is not a loan. MCAs advance you money based on your anticipated revenues (your average monthly bank deposit). The advance amount is determined based on your expected average monthly bank deposit and comes with a standard fee that is charged as a factor rate ranging from 1.08 to 1.45.
Although MCAs are among the fastest ways to access cash, they are also among the most expensive. I recommend using MCAs only when another short-term loan or financing option cannot meet your immediate needs, or when the potential returns of growing your business clearly outweigh the added expense associated with an MCA.
Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) may be a lesser-known financing option for established transportation business owners who own a home and have some equity. The lender reviews your home's value and the amount you still owe on your mortgage to determine how much equity you may be able to access.
Once approved, you can draw from the available credit as needed and use it for business expenses, such as purchasing a truck, making a down payment on a commercial vehicle, or expanding your fleet.
Because your home secures the line of credit, however, it's important to consider the risk. If you're unable to repay what you borrow, your home could be at risk.
Loans for New Trucking Companies
Most alternative lenders don't lend money to newly formed trucking companies until they have been in business for at least six months. Below is how new companies normally get financing:
A strong business plan. Banks and Small Business Administration (SBA) lenders are interested in seeing projected revenues, price assumptions, and any signed contracts.
A decent credit history. Since new trucking companies don't have a business credit history, lenders rely primarily on your personal credit history. A higher credit score increases your chances of getting financing.
A solid down payment. Putting 10% to 20% down on equipment shows your commitment.
Microloans through the SBA. These Microloans are available for amounts up to $50,000. Typically, Microloans require collateral and a personal guarantee from owners.
After you reach six months in business and generate $10,000 or more in average monthly revenue, there are many more financing options available. That's when most of the owner-operators I speak with add their second or third truck.
What Lenders Consider When Reviewing Your Loan Application
Knowing what lenders want before you apply means fewer back-and-forths and a better shot at the rate you want. While each lender uses its own criteria, there are key elements that appear on nearly every trucking loan application that I see:
Length of time in business
Most alternative lenders require applicants to be in business for at least six months before submitting a financing application. SBA and traditional bank lenders often require applicants to have been in business for two years or more. Equipment financing and invoice factoring may help finance some newer companies.
Credit score
Traditional lenders usually require a credit score of 680 or higher, while alternative lenders may accept scores ranging from 550 to 600. Scores above 600 usually result in lower interest rates.
Average monthly revenue
The typical minimum revenue threshold for alternative financing is $10,000 or more per month. Higher monthly and annual revenue levels mean you can borrow more.
Recent bank statements
Most lenders will evaluate three months' worth of business bank statements to assess cash inflows and deposit history.
Credentials to operate a trucking company
Active Department of Transportation (DOT) and motor carrier (MC) numbers, valid commercial truck insurance coverage, and signed freight contracts demonstrate a level of responsibility and maturity that can improve an applicant's chances of securing financing.
Steps To Get a Trucking Business Loan
Below are the steps you should follow before applying for a loan:
Determine why you need the money. Do you need money for a new truck? Will you need money for payroll? Are you trying to launch a new route? Identifying why you need money will determine what type of loan you need. If you're looking to buy a truck, equipment financing is likely the way to go. A line of credit or a term loan could be used to fund payroll. A working capital loan could finance either of these, depending on how quickly you anticipate needing access to funds again.
Review your financial and credit information. Review your personal credit report and credit score. Also, review your business credit score and your current revenue stream before applying for a loan. Lenders will review all three.
Gather necessary documentation. You'll need three months of bank statements, a copy of your driver's license, your business employer identification number (EIN), and basic information about your business. Equipment financing will also require either an invoice or a purchase order (PO) for the item(s) you are seeking to finance.
Explore multiple lenders. A lending marketplace like Clarify uses one application with a single soft inquiry to compare your options across 75+ vetted, reputable lenders. This saves time and allows you to compare multiple offers from multiple lenders at once.
Next, you're ready to apply. After completing Clarify Capital's two-minute application, you'll hear back from our advisors about your options.
